Fryzel Talks Risk-Based Capital

NCUA Board Member Michael Fryzel advocated for what he called the right sizing of risk-based capital rules for credit unions during a Nov. 15 speech to the American Association of Credit Union Leagues.

“Whether it is in an enhanced examination process that apportions our resources in an effort to mitigate, or prevent entirely, problems that can cripple an otherwise healthy credit union and cost your members money, or whether it is new regulations designed to foster a safer, sounder, more realistic capital regime, NCUA is working to stay abreast of an evolving industry,” Fryzel said.

“For example, consider NCUA’s contemplated changes to risk-based capital. While I am not prepared to discuss specifics today, I would draw your attention to parallel evolutions occurring in the banking system, driven by Basel III requirements. Credit unions are not statutorily covered by Basel, but NCUA is required to maintain a system that is ‘comparable’ to that of the banking industry,” he added.

Fryzel stressed that he is seeking a balanced approached to the rule, advocating for an approach that is not overly stringent nor overly permissive.

“I advocate ‘right sizing’ NCUA’s risk-based capital rules. One of the undeniable lessons learned from the crisis is the value of a financial institution’s capital—capital that is ample, durable and can be readily deployed to shore up a balance sheet under duress,” he said.

“I want NCUA to view risk, not as an extraordinary characteristic that should be avoided, but as a part of doing business as a 21st century, relevant provider of financial services. Risk can and should be managed,” he said.

“Risk-based capital, properly formulated, should match up with the real-world activities of a credit union. Greater net worth might be necessary, depending on the type of activities that credit unions pursue as they serve their members,” he added.

Fryzel’s address was delivered before 110 credit union league presidents, board chairs and government affairs professionals at the AACUL’s 2013 winter meeting in Palm Beach, Fla.